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A Virtual Turnaround Information Technology as the Primary Enabler

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Few business issues in a turnaround are tackled successfully without an integrated approach—one that blends the use of people, processes and resources with the inherent constraints of a declining business in the achievement of a clear strategy. As insolvency professionals, we all know there is an ever-pressing need to cut costs, increase revenues, improve margins and customer service and move towards the sharing of information and services, while demanding more accurate and timely management information.

But how do we meet the demands associated with words like accurate, timely, sharing, costs, revenue and margins? The answer could be found through a broad and in-depth examination of the company's technology infrastructure; this examination may identify management information systems as the primary enabler to accomplish a turnaround. Many turnarounds can use a technology-driven solution to serve as a catalyst to effect real change in performance and to challenge the assumptions inherent in the work processes that exist. At the same time, information technology (IT) enables companies to break away from outdated rules and fundamental assumptions underlying their operations, and it enhances information access, flexibility, response time to market demands and customer service levels.

While this may often be overlooked as the centerpiece of reorganization, it is, fundamentally, the core architecture that supports daily business functions. Technology, as implied here, is not just about setting up a computerized accounting system but about building a fully reliable business solution. IT can be the catalyst and primary driver in a turnaround if a need-set is identified early in an engagement and used to deliver significant advantages to business.

As turnaround managers, we make decisions as part of a conceptual framework that is bound together by detailed thinking about the business's functionality. Complementary of this framework should be the selection of an IT solution that can bring together the conceptual design of the overall business solution with a plan of how to achieve and implement it. IT, in this case, becomes the agent effecting real change in the organization and institutionalizes "best business practices" to improve business processes and information access, thus enabling better business decisions and increased operational efficiency.

Technology and the Company

Outside its operational or organizational difficulties, each turnaround faces new and unique challenges. The marketplace is becoming more competitive, and the task of today's turnaround manager and executive is to interpret these challenges and ensure the company can face them—and succeed.

We look for an IT solution to provide management with decision support necessary to adapt to this ever-changing environment. In fact, if we look back just a decade ago, integrated information systems were rarely found. At best, large companies bolted together loose accounting and inventory management systems, but the extreme cost left most small and middle market companies with separate and cumbersome programs.

Today, companies like Oracle, Baan and SAP offer solutions that address developing business issues and processes. Over the last few years, new functionally rich business application software packages have become available, and, given their promise, they have been widely adapted by many large and middle market businesses. In fact, some solution providers have put added weight in their products by tying their own performance to the future success of an enterprise.

What makes these products so useful, in combination with best practices, is that the solutions have built in the concept of workflow management, allowing business processes to be easily defined, so that the passage of information through the computer network mirrors internal manual processes. These IT solutions also facilitate "alerts" that elevate, for example, purchasing or sales quotations for approvals. Furthermore, "analyzers" can determine where bottlenecks are in the production process and provide real-time and historical views on sales.

Another benefit of introducing a packaged IT solution to a turnaround client is mitigation of the negative effects of high employee turnover. Much of the organization's knowledge, particularly among senior management, is personal and often remains in the employees' minds upon departure or termination. IT can enable the capture of such knowledge, then share and disseminate it so that when employees leave, their knowledge about customers, markets, products, services, competitors, employee skills, methods and processes are not lost to the organization.

Finally, a packaged information solution also can implement controls that are often lacking in an ailing company. For example, some measures of control instituted by technology are: the protection of the company's resources against waste, fraud and inefficiency; ensuring accuracy and reliability in accounting and operating data; securing compliance with company policies; and providing the ability to evaluate the level of performance in divisions, departments and personnel.

While there are a myriad of options that probably include 40 or more modules that complete an integrated system, some examples of modules and the benefits they realize are:

Financial: reduces closing cycle times, provides automatic consolidation of accounts, handles complex chart of accounts and supports any type of foreign currency.

Manufacturing: streamlines business operations and cycle times, and optimizes manufacturing processes across multiple sites.

Supply Chain Management: improves efficiencies by enabling timely communications and streamlined operations across the company and its trading partners, benefiting customers, warehouses, distribution centers, manufacturing sites and suppliers.

Decision Support: insights into business by offering the ability to analyze customer and product profitability, and conduct trend analysis and monthly financial reports.

The Bottom Line

As is always a challenge in a turn-around, working within the cash-flow constraints can be difficult. However, immediate return on investment can largely be realized through a decrease in human resources, ultimately leading to increases in productivity. One example is a recent engagement that witnessed a nearly 10 percent reduction of the company's workforce through the introduction of an Enterprise Resource Planning1 solution that returned greater than 30 percent of its capital investment in the first year.

Receivables management also has an important impact on the bottom line, enabling the company to minimize overall working capital and maximize cash-flow and return on corporate investment. In terms of fiscal efficiency, benefits typically include a decrease in delinquent accounts through efficient credit management and an acceleration in cash collection facilitated by the solution.

These points illustrate the difference between an accounting system and a true financial management solution. Information technology can help design and coordinate business options, and it empowers the workforce with the tools and information it needs to be successful.

Furthermore, by using information technology as the primary transformation enabler, companies turn toward a process-centered enterprise, rather than a people-centered organization. The result: faster response times, increased profit, improved productivity, reduced costs, better decision making, better staff attraction/retention and fulfillment of the company's and customer's expectations.


Footnotes

1 Enterprise Resource Planning (ERP) is the technical term used to refer to an enterprise-wide information system that ties together all the company's operations as described throughout this article. (Return to text)

Journal Date: 
Tuesday, September 1, 1998

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